Reforms to R&D concession could burden businesses

Compliance requirements for the Federal Government’s new research and development tax concession could unfairly burden small businesses, accountants have warned.

A consultation paper for the tax reforms, touted as the biggest reform to business innovation support for more than a decade, is under submission until October 26.

But PriceWaterhouseCoopers national R&D manager Sandra Mason says the proposals outlined in the paper “could severely limit the amount of research and development undertaken by Australian companies”.

Under the new regime, Australian businesses with a turnover of less that $20 million will be able to claim a refundable tax credit of up to 45 cents in the dollar.

But because the Government expects 2,000 more companies to apply for the credit each year under the new scheme, eligibility criteria tightening is necessary to ensure the best return to taxpayers, Federal Minister for Innovation Kim Carr says.

Eligibility burdens discussed in the paper include a sole purpose test, a lower rate of support (tax credits) and conditions that would cap the amounts of tax credit available, Mason says.

“The Government is streamlining the submissions process but the compliance burden will be increased,” she says.

“We understand the Government wants to target the program and we support that. But we think the change in definition [to the R&D eligibility] will be enough to achieve that. We don’t think that limiting compliance is necessary.”

The 45% tax credit for SMEs will be refundable in cash, the paper says. In addition, companies earning over $20 million will be given a 40% R&D tax credit that will effectively offset their total amount of tax payable.

Previously, only businesses with a turnover of less than $5 million, with losses, could claim a cash refund.

In addition, the Government paper discusses specific eligibility requirements for various industries.

“One thing they’ve discussed focusing on software is having a separate set of rules, which we think is unnecessary if they apply the change in definition, which is a two way test of being innovative and technically risky,” Mason says.

“We think they should provide practical guidelines, considering that software is a big part of the economy and will be going forward.”

Mason urged small business owners to lodge submissions on the paper before the discussion process ends.